15 April 2008
Operation Management Team Assignment
MBA 09’ -Team B9 Jen Prest Pei-Szu Lee Hummel Liu Junichi Kurano Thomas Wouters 1
Carlos Alonso Matoses
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CONTENTS
Chapter
page
CHAPTER I Supply Chain Management Strategy ……………………………………3~5 Article: Ford Motor Company: Supply Chain Strategy1 CHAPTER II Six Sigma Quality Management ………………………………………. 6~7 Article: Six Sigma Kick-Starts Starwood2 CHAPTER III Lean Operation for Public Sectors………….………………….......
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Article: Adaptation of Lean Operation for the Public Healthcare Sector3
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Ford Motor Company: Supply Chain management strategy Summary of article written by Robert D. Austin
Description of the Issue Ford motor was the second largest industrial company in the world. Their revenues were about $150billion, employees 370,000 and 20,000 dealers in more than 200 countries (Austin, 2001). Because of the large scale they struggled with their production efficiency under the competitive environment. Under this situation Ford planned to introduce “Virtual integration model” in order to reduce cost and process redundancies. The specific problems were; • • • •
Number of suppliers (4,000); 3tiers of suppliers; Production time; Complex global production network
• Constraints imposed by geography information flow; • Communication method by TEL or FAX; (Depaul CTI.online, 2003)
Solutions and Results With Organizing Ford’s challenges we would like to show what kind of solutions they introduced. Challenges
Solution
Enhance material flow Reduce inventory Shorten Delivery time
Ford Production system
Order to delivery
Improve production processes Move to pull-cased system Improve delivery time Customer demand base
Reduce supplier Link with external Demand pull
Auto-Xchange
Ford Retail Network
Visualize entire supply chain Optimize inventory Create an alternative distribution channel
Create new retail chain
As the above chart indicates, Ford tried to introduce a lot of initiatives in order to achieve their goals like becoming the Dell computer of the automotive industry, putting the customer in control and reducing overall cost. Especially, by using Ford Production system they would challenge to make sure that “when” and “where” certain parts and components would be required in advance and inventories would be significantly reduced (Austin, 2001). The concept was similar to Toyota Production system. Furthermore, in order to move from “company push” to “consumer pull”, that is, change from “forecasting demand model” to “customer demand model” Ford
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[鍵入文字] established the reengineering project Order to Delivery. It was aimed the time from 45-65days to 15day to deliver to customers. Additionally, Auto-Xchange, B2B tool, was a powerful tool to visualize the whole supply chain processes cooperating with suppliers. It could contribute to optimize inventory management and reduce the number of suppliers and also improve dramatically communication by exchanging electronic data. By mixing these solutions Ford could attain a higher quality, a higher customer satisfaction and a dramatic cost reduction. Alternative solutions to the problems In 1999, while Ford introduced his own private procurement platform Auto-Xchange, his major competitor GM did the same introducing GM Trade-Xchange. In February 2000, Ford, General Motors and DaimlerCrysler created the consortium-based market Covisint. One of the main benefits of this B2B e-Marketplace from the Supply Chain Management perspective is the capability to track the inventory levels, material flows and capacity constraints. On the other hand, it enables the communication and development of production and shipment schedules with the trading partners or suppliers (Baldi and Borgman, 2001). Conclusion and Recommendation Ford launched different initiatives in order to solve the different problems they had. By the introduction of the Ford Production System they could improve their operations and make them leaner and more efficient and they could solve the problem of production time. However, the rest of the problems were related to Supply Relationship Management. Only the Auto-Xchange initiative was launched to improve the relationship with suppliers, and it was not completely successful. Our recommendation is to focus on the following aspects in order to manage the relationship with suppliers efficiently: • • • •
Continuous improvement of processes with suppliers Automatic processing of transactions and execution with suppliers Integrated view of all trading partners’ planning and material flows Information shared with the suppliers in order to update directly information a “virtual” shared system
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Evaluation of the processes’ and relationship effectiveness
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[鍵入文字] References 1. Robert D. Austin. (2001). Ford Motor Company: Supply Chain Strategy. Harvard Business Review. 9, p2-5. 2. Stefan Baldi, Hans P. Borgman (2001). Consortium based-Based B2B e-Marketplaces. A case study in the Automotive Industry. e-Everything: e-Commerce, e-Government, e-Household, e-Democracy. 14th Bled Electronic Commerce Conference. Bled, Slovenia. (25-26 June, 2001) 3. Olayele Adelakun Ph.D. (2003). Ford Motor Company: Supply Chain Strategy. Available: facweb.cs.depaul.edu/yele/Course/IS577/ClassNote/Ford.ppt. accessed 9 April, 2008)
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Quality Control in the Service Industry - 6σ σKick-Starts Starwood Summary of article written by Spencer E. Ante
Description of the Issue It all started with the so-called “Unwind” project, whose purpose was to “to imagine a set of nightly activities that would draw guests out of their rooms and into the lobby where they could meet, mingle, and develop a greater loyalty to the [Starwood] hotel group.” Westin Chicago River North hotel was picked to pilot the project. Starwood executives had two choices: One, to hire consultants, a common start to new initiatives; or two, to establish their own project team to make their idea a reality. They chose the posterior one, and elected to do it with the methodology Six Sigma. As is common in companies these days, there was a lot of skepticism from the employees, who said “Six Sigma will hurt creativity” – a phrase supported by the failure of similar initiatives from other businesses, like 3M, whose Six Sigma program ended up with mixed results.
Solutions and Results In order to ensure success and differentiate themselves, Westin worked on four main approaches to make it happen, as follows: •
At the very beginning, they combined creativity with Six Sigma methodology which focused on reducing defects and cutting business costs.
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They harnessed the Six Sigma process to foster the creativity from hotel units and improve their capability of transforming concepts to reality. In another words, Six-Sigma is actually the horse-power of evaluation and implementation of creativity and innovation.
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Partnering with internal staff, they initiated a training program which provided them 150 Six Sigma black belts and 2,700 green belts who can help dream up new ideas and oversee evaluation and implementation processes.
They developed a very successful review process: new ideas -> council approval -> prototype (dry run) -> Green-belt analysis by “e-Tool” for mass implementation. These efforts paid off in the end. According to Starwood management, developers under the management technique delivered more than $100M in profits, and the parent company became the most profitable hotel operator – they had a 15% profit margin, much higher than rivals such as Hilton Hotels and Marriott International, and higher than the industry average of 9%. Geoff Ballotti, president of Starwood’s North American division states, “We have been driving our margin growth faster than our competitors…when people ask why, I point to Six-sigma.” •
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[鍵入文字] Alternative solutions to the problems The article discusses three major projects embarked upon by the Six Sigma team: reducing injuries by housekeepers, energy-efficient light bulbs, and Unwind massages. While the article does not go into detail about the specific methodology applied to each project, we can apply one to each project to imagine how the process may have taken place. •
Reducing injuries by housekeepers: Since the Six Sigma team recognized a problem, found the root cause, and implemented a solution; we can assume they used some form of the DMAIIC model. They Defined the problem – workers’ compensation claims were skyrocketing. By doing interviews and looking at the claims, they Measured the inputs and outcomes of the process. They then Analyzed the data to find that the root causes were slips, falls, and back strains. They Improved the employee work process, Implementing a stretching routine and longer-handled cleaning tools, and continue to Control it, slashing accident rates from 12 to 2 for every 200,000 work hours.
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Energy-efficient light bulbs: This trial-based program implies a PDCA cycle method. Six Sigma experts Planned – they recognized a problem, which was increasing energy costs, and developed a plan for improvement – using compact fluorescent light bulbs in 75% of Starwood’s rooms. Do – they implemented this plan on a test basis, and put the bulbs in a dozen rooms to test which ones gave off the best light. Presumably they continue to Check if the plan is working, i.e. to verify the cost reduction without complaints from guests, and will continue to Act as they institutionalize energy improvements across all Starwood properties.
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Unwind massages: Since this project created a new process, the DMADV model fits. A Six Sigma team Defined the goals of the activity – Starwood loyalty, and they Measured by translating customer requirements (a feeling of inclusion) into that goal. They Analyzed different options by brainstorming, Designed the new process of lobby massages – setting up the logistics and timing of the new project, and Verified the design’s effectiveness in the real world. The result – a feeling of guest loyalty for Starwood and its Unwind program, and, as an added bonus, a revenue increase of 30% for massages in the hotel spa.
Conclusion and Recommendation So this is living proof that Six Sigma doesn’t automatically stifle creativity, at least in the service industry. Combining efficiency and creativity can lead to an increase in both, a whole that is more than just the sum of each part. Reference 1. Spencer E. Ante (2007). Six Sigma Kick-Starts Starwood. Business week. (August, 2007), p1-3.
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Adaptation of Lean Operation for the Public Healthcare Sector Summary of article written by Zoe Radnor and Paul Walley
Description of the Issue Recent increases in UK public spending have increased the pressure on public services to focus on productivity and waste reduction. The pursuit for improving the performance of the public sector has become the main target for governments around the world. This has led to the trend of transferring industrial management practices into the public sector. According to the article discussed in this report, Zoe Radnor and his colleague found that Lean has been used as one way to achieve real and substantial cost savings and quality improvement in the public sector (Zoe Radnor et al., 2008). The article looks at case study evidence in order to understand what and how public sector organizations are implementing under the Lean banner. Do organizations regard Lean merely as a set of tools and techniques without considering either the underlying conditions or Lean as a philosophy? Solutions and Results Zoe Radnor and his colleague conducted eight case studies by having semi-structured interviews and analyzing the related implementation reports. Two major approaches were used to implement Lean in public healthcare sectors: Rapid Improvement of Events (RIEs) and a Full Implementation or Kaizen blitz. RIEs focused on quality improvement and waste elimination which are used in improving problem areas. The organizations which used the Full Implementation method opted for a long-term approach to Lean implementation. The drivers for change towards a Lean approach were quite varied and included: • A change of leadership; • Struggle with performance indicators; • The introduction of a new technology; • Government agendas;
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Recommendations; Changing policy environment; Threat of competition; Demand for increased efficiency; Service expansion with limited resources.
Barriers to the successful implementation of Lean principles and associated techniques in the UK public sector have been found to include: • • • • •
Lack of clear customer focus; Too many procedures; People working in silos; Too many targets; Lack of awareness of strategic direction;
• General belief that staff overworked and underpaid;
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• Lack of understanding of the effect of variation, systems thinking and process flow;
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Developing a culture that creates the involvement of everyone in the organization is critical for the implementation of the Lean philosophy. Lean needs to consist of enabling conditions as well as visible tools and techniques in order to achieve a successful sustainable implementation. All the case study sites reported that the adaption of Lean were successful to a certain level and produced significant benefits to productivity, speed, and quality. Some of the most important improvements were: • Productivity increase due to a more evenly spread workload across the staff; • Increase in customer satisfaction and reduction in flow time by the standardization of processes; • Waste reduction and increase in cost savings; • Decrease in staff turnover rate around 4% compared to 25~30% before the implementation; Alternative solutions to the problems As Lean had been proposed as a managerial toolkit to improve the service performance and quality improvement, organizations might overlook some other basic ways to solve their problems. Actually, in recent years, healthcare organizations have tried to adapt lots of industrial management into their process improvement and quality control. For example, the healthcare organizations can decrease the probability of malpractice to a certain level by implementing six-sigma quality management. In addition, the top management can adapt bottleneck management or capacity planning to adjust the limited resources among different departments to reach the cost effective expectation and to raise the utilization rate with the limited resources. Last but not least, material requirement planning can help to avoid improper quantity of order and increase cost savings. Conclusion and Recommendation Overall the implementation of Lean in the public sector will thus have positive effects. However, there are cautions about the risk of failure if Lean is simply seen as a tactical toolkit developed from manufacturing (Radnor and Walley, 2006) without consideration of either the ‘enabling conditions’ or the whole system, philosophical approach.
References 1. Radnor, Z., and Walley, P. (2006). Lean on me.... Public Finance (28 July-3 August), p16-19. 2. Radnor, Z. and Walley, P. (2008). Learning to Walk Before We Try to Run: Adapting Lean for the Public Sector. Public Money & Management. 11 (1), p13-20.
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